Market Overview

Short Interest Rises in Delta, Falls in U.S. Airways (DAL, LCC)

Delta Air Lines (NYSE: DAL), Southwest Airlines (NYSE: LUV) and U.S. Airways (NYSE: LCC) had the largest swings in short interest in the U.S. airline industry between the May 15 and May 31 settlement dates. We take a closer look at these three below.

The number of shares sold short in Alaska Air Group (NYSE: ALK) and Spirit Airlines (NASDAQ: SAVE) increased as well.

But Allegiant Travel (NASDAQ: ALGT), JetBlue Airways (NASDAQ: JBLU) and United Continental (NYSE: UAL) saw their short interest decline during the period.

American Airlines remains in bankruptcy, pending completion of its merger with U.S. Airways.

In addition, in late May many short sellers moved back into manufacturer Boeing (NYSE: BA), after its 787 Dreamliner resumed flying after being grounded due to problems with its batteries. The number of Lockheed Martin (NYSE: LMT) shares sold short also grew.

Delta Air Lines

This Atlanta-based air transportation company saw short interest rise almost 18 percent to 17.35 million shares. That was on top of a more than 26 percent gain in earlier in the month. Though that May 31 figure was the highest number of shares sold short in the past year, it was about two percent of the float.

In May, Delta opened its new JFK terminal. The company's market capitalization is almost $16 billion, and the dividend yield is about 1.3 percent. The long-term earnings per share (EPS) growth forecast is more than 24 percent. And the operating margin is better than the industry average.

The consensus recommendation of the analysts who follow the stock and were surveyed by Thomson/First Call is to buy shares of Delta. Their mean price target, or where the analysts expect the share price to go, is more than 16 percent higher than the current share price. The stock has not been in that ballpark since 2007.

The share price is more than 51 percent higher than the beginning of the year but has faced resistance around $19 since early May. The stock has outperformed competitors United Continental and U.S. Airways, as well as the Dow Jones Industrial Average, over the past six months.

Southwest Airlines

Shares sold short in this Dallas-based passenger airline operator declined about 15 percent during the period to around 29.28 million, taking back some of the 94 percent surge in short interest in the previous period. That was still the second highest number of shares sold short in the past year, and it represents about four percent of the float. The days to cover fell to around three.

This carrier serves 97 destinations in 41 states and six destinations in the Caribbean and Central America. It has a market cap of near $10 billion. In May, it boosted its dividend and appointed a new CIO. The company's long-term EPS growth forecast is more than 34 percent. The operating margin is greater than the industry average.

Just six of the 15 polled analysts recommend buying Southwest shares. But analysts believe the shares have some headroom as their mean price target represents more than eight percent potential upside, relative to the current share price. That consensus target would be a new 52-week high.

The share price is up more than 33 percent year-to-date but has faced resistance above $14 for the past few weeks. Over the past six months, the stock has outperformed competitors JetBlue and U.S. Airways, as well as the Dow Jones Industrial Average and the S&P 500.

U.S. Airways

Short interest in this Arizona-based air transport company fell about 23 percent to 39.02 million shares, which was the lowest number of shares sold short since February. But note that it represented more than 24 percent of the float. The days to cover pulled back from more than nine to around six.

The airline is expected to complete its merger with American Airlines in the third quarter, and it began seasonal service to Shannon, Ireland in May. The company has a market cap of almost $3 billion. The long-term EPS growth forecast is more than 64 percent, and the return on equity is more than 121 percent. The P/E ratio is much less than the industry average.

Of the 11 analysts surveyed, eight recommend buying shares, and none recommend selling the stock. Their mean price target is more than 22 percent higher than the current share price. That target would be a level the stock has not seen since late 2007.

U.S. Airways shares are trading about 21 percent higher year-to-date, even with a more than 11 percent pullback from a recent multiyear high. However, the stock has underperformed competitors Southwest and Delta over the past six months, though it has outperformed the broader markets.

Posted-In: 787 Dreamliner alaska air American Airlines Boeing Delta Air Lines JetBlue AirwaysShort Ideas Trading Ideas Best of Benzinga

 

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